The ongoing COVID-19 pandemic has impacted almost every financial instrument in a significant manner, especially those soon approaching retirement as they are not able to take a cautious call on where to keep the accumulated corpus invested.
For most of us, retirement means the end of earning capacity, at least until one chooses to work even after the retirement as a consultant or so with a private firm. For those who have already retired or are retiring soon, making the best use of their retirement corpus is the prime objective. This is usually because retirement is a stage of life which is most likely to bring feelings of apprehension, especially when it comes to managing the finances in the right manner.
Now that you won’t be receiving “salary credited to your account” messages anymore, maintaining the same lifestyle that you used to enjoy while earning remains a valid concern for anyone who has retired or is retiring soon. At this age, building a retirement portfolio with a mix of fixed monthly income and enough corpus to meet unforeseen financial expenses remains a major challenge for many. And the fear seems quite valid as once you retire, the ultimate challenge is not outliving the retirement funds – while you may retire at the age of 58 or 60, the life expectancy could still be 75 – 80 years.
Finding the Right Investment Instrument
The ongoing COVID-19 pandemic has impacted almost every financial instrument in a significant manner, especially those soon approaching retirement as they are not able to take a cautious call on where to keep the accumulated corpus invested. Those with limited resources are looking for investments that are safe and guarantee a fixed return for 20 – 30 years after retirement. Most importantly, in a scenario where interest rates on various investment options are falling drastically, it is important to build your investment portfolio wisely. For instance, Public Provident Fund, which offered 11 – 12 per cent interest per annum in the 1990s, today merely gives 7.1 per cent interest. Also, the rate of interest on bank fixed deposits has fallen from 8.5 per cent in the year 2014 to 5.4 per cent in the year 2020. These interest rates are further expected to fall by 3 – 5 per cent in the next few years as the country evolves into a completely developed economy.
Annuity Plans – The Right Investment Option for You
The two most important things that one requires post retirement are, first – the love and support of loved ones and, Second – a fixed regular income as a replacement of salary to take care of daily expenses without asking for help from others. If you are also someone who has already retired or is retiring soon, and is looking for a regular and guaranteed income in your sunset years, investing your hard-earned money in a suitable Annuity Plan is the answer. Under an annuity plan, you pay a lump sum in the accumulation period and get regular payments as long as you live or for a pre-specified fixed period. Annuity plans are specifically designed to meet long-term retirement needs of people with a decent corpus for investment.
An annuity plan allows you to lock-in the existing interest rate not just for a period of 10/15/20/25 years but your entire life. Say, if you are a 60-year-old individual and you buy an annuity plan where the annual payout comes to 6 per cent of the amount you invested. Now after a decade or even more, if the rate of interest declines to 4 – 5 per cent, you will still continue to receive a payout at 6 per cent interest rate up to your policy term – the one at which you invested. Moreover, annuity plans are an excellent way to tackle reinvestment risk and reduce the longevity risk as these plans guarantee you a fixed income for life/until your policy term.
Category of Annuity Plans
Under the annuity plans segment, there are two different categories of annuity plans available namely – Immediate Annuity and Deferred Annuity. An immediate annuity plan is the one in which you invest an amount as lump sum and start receiving pension from the very next month of investment. Under many immediate annuity plans, you also have the choice of getting all your premiums back. Then there also Joint Life Immediate Annuity plans where initially the policyholder gets pension. Further, on death of the policyholder, the spouse gets the pension for life. Later, on death of the spouse, the premium invested is returned to the dependents as legacy amount. Under such plans, rate of interest is guaranteed for as long as you and your wife both are alive. Over the last few years, the annuity plans segment has witnessed better returns and more flexible variants that cater to specific needs and requirements of the customers close to retirement.
Another category of annuity plans is Deferred Annuity Plans – best pick for people who are about to retire or will retire in the next 10 years. Under such plans, customers can make one-time investment and lock in the rate of interest today and choose to take the pension anytime between 1 to 10 years. In Deferred Annuity plans as well, customers have the option of choosing between single and Joint life annuity with Return of Purchase Price.
One of the most convenient ways to invest in Annuity Plans is buying the plans online. Online plans are not only easy to buy but even promise better rate of interest in comparison to plans available offline. Some prominent options that you may look out for include HDFC Immediate Annuity Plan and ICICI Prudential Immediate Annuity Plan.
(By Vivek Jain, Head-Investments BU, Policybazaar.com)